Understanding the Direct Tax Code 2025

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Understanding the Direct Tax Code 2025

• www.aiatindia.com

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Introduction
Indias tax system is set to undergo a
significant transformation with the introduction
of the Direct Tax Code (DTC) 2025. Designed to
replace the Income Tax Act of 1961, the DTC seeks
to simplify and update the country's tax
structure. After many delays, the government has
announced that the Direct Tax Code will come into
effect from April 2025, marking a new fiscal era
for both businesses and individuals in the
country.
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Why the Need for the Direct Tax Code?
The current Income Tax Act was enacted in 1961,
and while it has been amended multiple times, it
has not kept pace with the rapidly evolving
economic environment. The increasing complexity
of tax laws, the need for more clarity on
international taxation, and the demand for a
simplified tax structure have all contributed to
the call for a new Direct Tax Code.
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The primary goals of the DTC 2025 are to

• Simplify tax laws and make them more
  comprehensible for individuals and businesses.
• Expand the tax base by bringing more individuals
  and entities into the tax net.
• Ensure better compliance with anti-evasion
  measures.
• Improve the ease of doing business in India by
  making the tax regime more investor-friendly.

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Major Changes in Direct Tax Code 2025
Simplified Tax Structure The Direct Tax Code
2025 proposes a simpler and more rationalized tax
structure by reducing the complexities in tax
calculations. This includes a streamlined set of
income tax slabs, aimed at making the tax system
more understandable for individuals and
businesses alike. Personal Income Tax Slabs
may undergo restructuring, potentially offering
more favourable rates for middle-income groups
while expanding the tax base.
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Reduction in Corporate Tax Rates
A key focus of the DTC is to further reduce the
corporate tax rates to make India more
competitive globally. This change is intended to
boost business growth, attract foreign
investment, and encourage companies to set up
operations in India. The Code aims to
rationalize the treatment of profits across
sectors, especially for start-ups and MSMEs, by
offering targeted tax benefits and exemptions.
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Changes in Capital Gains Taxation Capital gains
are treated as normal income under the DTC 2025,
so you may pay greater taxes on them.   TDS and
TCS on Most Income The new system will apply
Tax Deducted at Source (TDS) or Tax Collected at
Source (TCS) to practically all types of income,
hence increasing monthly tax payments.
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Broader Tax Base and Fewer Exemptions One of the
most significant insights into the DTC 2025 is
the focus on increasing the tax base by reducing
the amount of exemptions and deductions
available. While this may appear to increase tax
liability, it is designed to simplify compliance
and limit the opportunity for tax avoidance.
The Code aims to remove outdated exemptions and
focus on a smaller set of targeted tax reliefs,
making tax filing more straightforward.
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Increased Focus on Wealth and Estate Taxes The
DTC 2025 is expected to consider the
reintroduction of wealth tax or inheritance tax,
aimed at addressing inequality and ensuring
high-net-worth individuals (HNIs) contribute
equitably to tax revenues. The estate duty or
inheritance tax, if introduced, could impact
wealth transfers, particularly for HNIs, and
encourage efficient estate planning and
redistribution of wealth.
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Focus on Environmental and Social
Responsibility The DTC includes provisions to
promote environmentally sustainable practices,
offering tax benefits to companies investing in
green technology or contributing to corporate
social responsibility (CSR) activities.
Certain tax deductions may be introduced for
businesses and individuals contributing to the
sustainability agenda, such as investing in
renewable energy, reducing carbon footprints, or
social impact programs.
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Tax Audit Changes The DTC 2025 may allow CS and
CMA experts to undertake tax audits previously
reserved for Chartered Accountants. Dividend
Distribution and MAT Revisions Dividend
Taxation A reform of the Dividend Distribution
Tax (DDT) a transition to taxing dividends at the
shareholder level is expected to conform with
global tax standards. MAT (Minimum Alternate
Tax) Potential changes to the MAT regime that
would aid businesses in their early stages of
growth or experiencing financial difficulties.  
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